Roth Option Available in May for TSP Investors

By on April 11, 2012 in News

In February, we ran an article entitled Considering The New TSP Roth Option. You can review Jason Visner’s article to see if choosing the Roth option is something that you should consider in your retirement planning.

One question that has come from many readers is “When will this new option be available?”

The date was unknown and we advised our readers that “the Roth option will be available in the second quarter of this year (April – June).”

Start Date for Roth Contributions 

Now, however, the TSP has announced a specific date: May 7, 2012 is the date that the TSP will begin to accept Roth TSP contributions.

As many readers know, a Roth TSP allows federal employees and military personnel to contribute after-tax dollars into the account. Under current law, all contributions and the earnings can be withdrawn tax-free as long as all Internal Revenue Service criteria have been met. 

All Agencies May Not Be Ready

According to the TSP, while information has been distributed to agencies since December 2010 in order to allow them to prepare their software and payroll systems to accept Roth contributions, some agencies are not yet ready to accomplish this. If you happen to be working in one of these agencies, you will have to wait until your agency has completed the changes necessary to accept the contributions. 

TSP Funds Available for the Roth

Your Roth TSP contributions can go into any of the Thrift Savings Plan funds including the lifecycle funds. There is approximately $308 billion now invested in the TSP for about 4.5 million participants.

You will need to check with your servicing human resources or your payroll office to find out if you agency is ready to start accepting Roth contributions on May 7, 2012. 


© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.


About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

21 Replies

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  1. Hamacpz says:

    After i retire in 2015 from the Federal government, can i transfer my funds in ROTH TSP to a Roth IRA?  

    • USPS Letter Carrier says:

      Yes you can as per the TSP site: Transfers allowed to Roth 401(k)s, Roth 403(b)s, Roth 457(b)s, and Roth IRAs3

  2. Rlsudduth says:

    I have a question I hope someone can answer:  I am retired.  Can I “roll over” (or whatever the proper term is) my TSP funds into the Roth in May?

    • Fed Guy says:

      No, but you can roll it over into a traditional IRA.

      • Tom says:

        Actually you could roll it over but you would then have to pay income taxes on the full amount.

        • USPS Letter Carrier says:

          If Risudduth meant “roll over” his traditional TSP to a Roth TSP – which he cannot do – then your answer is incorrect. If TSP to Roth IRA, then correct.

  3. kramarpie says:

    This may have been addressed but I have NOT seen an answer to the QUESTION:
    *Can Fed. retirees convert their TSP savings to a Roth TSP.???  Thanks for an informed response.

    • FERSretired says:

      Nobody, (Retiree or Active fed employee) can convert regular TSP savings to a ROTH TSP.

    • USPS Letter Carrier says:

      The link Fed Guy provided to the TSP site states: (Note: Money already in your account when you begin making Roth contributions will remain part of your traditional balance. You will not be able to convert it to Roth.)

      It’s repeated on the TSP pub ” A New TSP Element” – so no, noone may convert their traditional TSP acount to the Roth TSP.

      Anyone looking for the benefit of a Roth account should consider opening or adding to their Roth IRA account.

  4. Fed Guy says:

    Thanks for being so responsive Ralph.

  5. Fed Guy says:

    The Roth TSP is not I repeat is NOT a Roth IRA.  Please check the TSP website and you will find out that while you will be be able to transfer out from the new Roth TSP to a Roth IRA you will NOT be allowed to transfer in from your Roth IRA to the new Roth TSP.  See the TSP link
    I would be very interested on why that is but in the mean time do your readers a favor and change the headline and update the content of the article.  Maybe we can get FedBens on this to find out why this is.

    • Fed Peasant says:

      Why not just task the TSP authorities themselves, plus your member of congress?

    • USPS Letter Carrier says:

      To clarify, the Publication “A New TSP Element” on that link specifies “You will be able to transfer Roth 401(k), Roth 403(b), and Roth 457(b) (but not Roth IRA) money into the Roth balance in your TSP account.”

      Even if we were allowed to transfer from a Roth IRA to Roth TSP, I wouldn’t do so, nor do I think it’s generally a good idea to do so. 

    • FERSretired says:

      Regular ROTH IRA’s do not have a requirement to start taking payments at age 70 1/2.  TSP ROTH forces you to start taking payments by age 70 1/2.   Mixing the two would be like putting apples and oranges in the same bucket.  

    • USPS Letter Carrier says:

      “you will NOT be allowed to transfer in from your Roth IRA to the new Roth TSP…I would be very interested on why”
      From the IRS:
      Pub 590 > Roth IRAs > Rollover From a Roth IRA –
      A rollover from a Roth IRA to an employer retirement plan is not allowed.

  6. MisterT says:

    Did the math on this…not really a good option for a lot of Feds.

    • alexei27 says:

       I would appreciate seeing an example.

      • EOS5D says:

         I can retire in 5 years, so here were my rough calcs.  Bottom line, if my tax rate is the same in retirement, I’ll have 17K more in my pocket at age 70.

        YearTSP Contr.5% ReturnBalanceTaxes Pd – Otherwise Invested1$22,500$1,125$23,625 $7,650$383$8,0332$22,500$1,181$47,306 $7,650$402$16,0843$22,500$2,365$72,172 $7,650$804$24,5384$22,500$3,609$98,280 $7,650$1,227$33,4155$22,500$4,914$125,694 $7,650$1,671$42,7366$0$6,285$131,979 $0$2,137$44,8737$0$6,599$138,578 $0$2,244$47,1168$0$6,929$145,507 $0$2,356$49,4729$0$7,275$152,782 $0$2,474$51,94610$0$7,639$160,421 $0$2,597$54,54311$0$8,021$168,442 $0$2,727$57,27012$0$8,422$176,864 $0$2,864$60,13413$0$8,843$185,708 $0$3,007$63,14114$0$9,285$194,993 $0$3,157$66,29815$0$9,750$204,743 $0$3,315$69,61216$0$10,237$214,980 $0$3,481$73,09317$0$10,749$225,729 $0$3,655$76,74818$0$11,286$237,015 $0$3,837$80,585     Cap. Gain$42,335 Trad IRA Net  $156,430  Net Total$66,192 “+ $ from taxes $222,622             Roth IRA Net $237,015     

        • USPS Letter Carrier says:

          The formatting made your calculations impossible to read or understand. How much are you assuming you’re contributing to a Roth TSP and did you compare it to a corresponding untaxed contribution (read higher amount) to the traditional TSP?

      • Scion dePublius says:

        Everyone really has to do their own math (or have a CFP do it for you).  Bottom line is that standard TSP contributions reduce your taxable income by as much as 17K each year (22.5K if you can use Catch-up program).  In a ROTH program, this deduction is forfeit for whatever part of your TSP goes to ROTH. 
        How that impacts your taxes is extremely personal, considering variables such as joint income, out-side income sources, dependants, and other AGI and taxable income factors, as well as proximity to retirement (next year or 15 years from now?). 
        The up-side of ROTH is that growth and earnings on money within the ROTH accrue tax free, so no taxes are owed when distributions are paid out after retirement.  Also, penalty for early withdrawal does not include paying back taxes in invested principal.
        As you can see, YOU must run YOUR numbers and consider YOUR circumstances for this kind of decision — no “cookie-cutter” answers do justice.

  7. Norman says:

    Can you identify the agencies for us that will ready by 7 May 2012?